Considering the rapprochement of Russia and Uzbekistan observed in the middle of the first decade of the ХХIst century, the number of Russian companies, and first of all Gazprom and LUKOIL, managed to become leaders within Uzbekistani oil and gas industry and to “book” a number of biggest gas fields in the Republic being supported by the Government of the Russian Federation.
First of all, in comparison with the 90-s of the ХХth century we can observe a sound intensification of the economic policy of the Russian Federation within Central Asia, where strategic interests of Russia lie mainly within the sphere of oil and gas, in which the most part of Russian investments flows. And if in 90-s financial flows from Russia into the oil-gas industry of Uzbekistan were insignificant, then in the beginning of 2009 their scope reached about 900 million dollars.
At the background the indexes of investing activity level of other countries and companies of the oil and gas industry of the Republic of Uzbekistan seems to be smaller. Some estimates show that Russian investments comprise about 60% of the total volume of foreign investments into the Republic. Besides, the project-investment activity of Russian companies as a rule is of a long-term prospect – 25-35 years. As a result, already till 2012 the total volume of Russian investments into the oil-gas industry of Uzbekistan is potentially able to grow up to 5-6 billion dollars.
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Secondly, Russian companies have reached leading positions within oil-gas industry of Uzbekistan comparing with petroleum and gas companies of other countries. In the end of 2008 the scope of gas production of Russian companies covered about 5,5% of the total gas production in the Republic. Although the share pointed is not that high itself, nevertheless, it’s extremely indicative considering the fact that oil and gas companies of the two countries haven’t started the industrial production of hydrocarbon in Uzbekistan yet. Thus in the end of 2008 the volume of gas produced by LUKOIL company covered about 2,34 billion cubic meters or about 4% of the total produced gas in the Republic (67,8 billion cubic meters). In its turn, in 2008 Gazprom produced about 1 billion cubic meters of gas which comprised about 1,5% of the total scope of gas produced in Uzbekistan. Furthermore, all Russian projects on new hydrocarbon fields development in Uzbekistan are at their initial stage, and in the years to come the share of Russian companies in Uzbekistani gas production industry will increase significantly.
Within a middle-term prospect Russian companies plan to increase production of oil and gas in Uzbekistan sufficiently. And more optimistic and definite plans belong to LUKOIL, which today heads the list of companies investing into the oil and gas industry of Uzbekistan and producing gas in the Republic.
Thus the Senior Management of LUKOIL claimed that by 2013 the company intends to promote the production of Uzbekistani gas up to 15-16 billion cubic meters, which will over about 1/5 of the total produced volume within the Republic. In its turn, in the sphere of oil and gas condensate, it is expected that by 2013 LUKOIL will develop its production capacity up to 500 thousand tons a year or 7,2% of the possible total volume of oil and gas condensate production in the Republic.
Thirdly, the maintenance of firm positions of Russia within oil and gas industry of Uzbekistan is promoted by the fact that the Republic doesn’t yet possess alternative to Russian ways and facilities of gas export. In 2008 more than 90% of Uzbekistani gas export flew to the Russian Federation (the remaining part of the blue fuel – less than 10%, Uzbekistan exported to the neighboring Kyrgyzstan and Tajikistan). This kind of “infrastructure dependence” in reality promoted the interest of Uzbekistan in further oil and gas cooperation with Russia.
As a result, in comparison with other foreign companies and states, presence in Uzbekistan, Russia and Russian oil and gas corporations are still beneficial within the following issues:
- control over most perspective hydrocarbon fields of Uzbekistan;
- monopoly within Uzbekistan gas export provision.
However in future Russia and Russian companies are at risk to lose these advantages because of the number of reasons. The case is that Russian companies in Uzbekistan (as well as in Kazakhstan and Turkmenistan) in some cases can’t compete with other foreign companies as they are not involved into the development of highly technologic fields. This is for example proved by the fact that after 2 years of geoexplorations (2007-2008)Gazprom ceded a number of big fields of the Ustur Plateau to the Malaysian company Petronas. Moreover, Russian companies in Uzbekistan don’t yet participate within the projects on deep processing of raw hydrocarbons, staking mostly at geoexploration, production and transportation of gas from the Republic of Uzbekistan.
However, this doesn’t correspond to the objectives of strategic economic development of Uzbekistan, which concentrates its attention exactly on deep processing of hydrocarbons with production of gas and petroleum chemistry products with a high rate of value added, which anticipates the reduction of gas export and at the same time the increase of gas processing in situ. Moreover, that the Republic of Uzbekistan doesn’t have export facilities at all (Uzbekistan is a netto oil importing state), and export facilities of gas are relatively small (at least at the background of the scale of demand of Russia in “blue fuel” and comparing with export facilities of Turkmenistan for example). This is routed within objectively high internal hydrocarbon demand of the country (numerous population – more than 27 million people, power-intensive industries and domination of gas within petroleum-energy balance of the country – more than 85%). Considering the limits of technologic and financial facilities of Russian companies, lately Uzbekistan has made active efforts to attract Asian companies into its oil and gas industry – Chinese, Malaysian, Korean, Singaporean, Japanese companies which are equipped with modern technologies and at the same time possess financial resources.
Except for the above mentioned, it’s also significant that Russian monopoly on Uzbekistani gas export provision will soon start collapsing. And although Uzbekistan itself doesn’t have great plans (in comparison for example with the same Turkmenistan) on diversification of gas exporting ways, nevertheless, already in 2010 a new main gas pipeline will be commissioned “Turkmenistan-Uzbekistan-Kazakhstan-China”. That is why it is still not clear which volumes of gas Uzbekistan will prefer to export to Russia/ Russian direction, and which volumes can potentially be oriented on China. So much as Kazakhstan and China have already signed an agreement on annual supplies of up to 5 billion cubic meters of gas.
In general, oil and gas cooperation between Russian and Uzbekistan is headed mainly on enhancement of production capacity, primary processing and export of hydrocarbons on external markets, and in this connection practically doesn’t touch upon the issues of deep processing of raw hydrocarbons. However, as it is imagined this format of cooperation doesn’t promote the development of overwhelming and full-scale economic interaction between Moscow and Tashkent.
Forecast: Realistic Scenario
Prospects of Russian-Uzbekistani cooperation within oil and gas industry are mainly defined by the further steps of Gazprom and LUKOIL within accumulation of its project-investment activity: as in the sphere of hydrocarbons production as well as their processing within the territory of the Republic of Uzbekistan. By this, it will be also important how fast they will be able to modernize and extend the existing gas-transporting system in Russian direction (gas pipelines “Central Asia-Center”, “Bukhara - Ural”), and also to preserve mutually acceptable scheme of payments for Uzbekistani gas.
By the accomplishment of already fulfilled oil and gas projects in Uzbekistan, Russia is able to get at the next level of Uzbekistani gas production and export:
* The volumes of gas production by Russian companies by 2010 can comprise over 2-3 billion cubic meters, by 2020 – at most over 15-16 billion cubic meters, and further (approximately by 2030) the indexes possibly will stabilize at this level.
The given estimates are based on the assumption that the scopes of gas production by Russian companies will grow in proportion to the development of new fields, first of all in the South-West of Uzbekistan (Kandym Group) and Uzbekistani part of Aral Sea. At the same time, the level of financing of all the production projects is not yet clear, as within the terms of world crisis Russian oil and gas companies are forced to reduce their investment programs significantly.
* Volumes of gas supplies to Russia/within Russian direction by 2010 will most likely be only a bit higher then the current level: a bit higher than 15 billion cubic meters or 20 billion cubic meters.
It’s extremely difficult at the moment to forecast gas supplies within more long-term prospect and in particular to talk about more sufficient grow of gas export from Uzbekistan to Russia/Russian direction.
First of all many things depend on the fact, how they will be able to increase gas production and at the same time, to reduce internal demand and gas losses sufficiently (by production, transportation and storage). The last one is real only at the expense of wide implementation of resource-saving technologies, which requires significant investments.
Uzbekistan intend to promote “blue fuel” export mainly at the cost of reduction of internal consumption, as supposed up to 32 billion cubic meters annually by 2020 (within the framework of state energy-saving program). In this case, if the volume of production of “blue fuel” remain at the current level (60-70 billion cubic meters), by 2020 export potential of Uzbekistan will comprise about 30 billion cubic meters a year.
However, economic strategy of Uzbekistan in general is directed on the further industrialization of the country. And it will be extremely problematic to combine industrial growth with cardinal reduction of energy consumption.
Most likely, in the result, export facilities of Uzbekistan won’t significantly accede 20 billion cubic meters a year, where the greatest part of these volumes, will still be exporting to Russia/Russian direction.
Secondly, it is possible to increase supplies of Uzbekistani gas to Russia/Russian direction significantly only in case of reconstruction of already existing system of main gas pipelines Central Asia – Center and “Bukhara-Ural”, and also in case of a new pipeline construction, the agreement on which was reached in January of 2009 during a state visit of Russian President to the Republic of Uzbekistan. However, because of the world financial crisis the prospects of such a large-scale operation are still unclear.
* Volumes of oil/oil products supplies to Uzbekistan/from Uzbekistan
Uzbekistani oil export at least within the foreseeable future is impossible as the Republic doesn’t only possess oil export potential, but also it imports oil. Moreover, in Uzbekistan there is a law,
banning crude oil export. Although some growth of oil production rate is expected in Uzbekistan up to 2030, however, internal consumption will increase even more intensively. As a result, the dependence of Uzbekistan from oil import within a middle-term prospect will only promote. As expected in 2010 Uzbekistan will be forced to import not less than 4,2 million tons of oil, in 2020 – 6,7 million tons, and in 2030 – 8,8 million tons. All these give Russia extra possibilities to intensify oil and gas cooperation with Uzbekistan, including also the prospect to penetrate into the market of oil products of the Republic. Although in the part concerning oil and oil products supplies to Uzbekistani market Russia can face serious rivals as Kazakhstan, and possibly Turkmenistan.
As supposed, main risks include the following:
- maintenance of raw materials domination within Russian-Uzbekistan cooperation in oil and gas industry;
- possible shortage of gas supplies to Russia/Russian direction by Uzbekistan.
Maintenance of Raw Materials Domination Within Russian-Uzbekistan Cooperation in Oil and Gas Industry
In case if Russia will proceed concentrating mainly on gas production and transportation (the way it happens currently) than without prejudice in time it will lose its positions within oil and gas industry of Uzbekistan.
As the strategy of development of Uzbekistani oil and gas sphere is oriented on deep processing of raw hydrocarbons, than companies from China, Malaysia, Korea, Singapore, and in future maybe from Japan and India acting in the Republic will most likely gradually reorient on deep oil and gas processing. The sales of products, produced within the territory of Uzbekistan, with a high rate of value added within external markets is more economic beneficial for the Republic than the export of raw materials.
Considering the above stated, due to objective Uzbekistan reasons will prone to give preference to Asian companies than Russian ones. In particular, Malaysian Petronas and South Korean KOGAS have already signed with NHK “Uzbekneftegaz” a treaty on development of feasibility study on construction of two plants processing gas into synthetic liquid fuel (in Kashkadarya region of 1,75 million tons capacity and in the Usturt Plateau of 1,5 million tons of liquid fuel correspondently). Further, if Asian companies will be ready to invest more into the projects on arrangement of gas-chemical manufactures, then Uzbekistan in principle, can agree on more significant concessions in the framework of the access to the development and production of raw hydrocarbons within perspective fields, as for example, it happened with Malaysian company Petronas in Usturt Plateau.
Shortage of Gas Supplies to Russia/Russian Direction by Uzbekistan
Despite the fact that today Uzbekistan strives to reduce internal consumption of gas and to maintain the volumes of gas export to Russia/Russian direction, the further industrialization of the country and growth of the population will lead to the promotion of internal consumption of “blue fuel”. According to the estimates of Russian experts, even if Uzbekistani energy-saving program will appear to be effective, then by 2030 the volumes of internal consumptions of gas are still expected at the level of minimum 50 billion cubic meters. If Uzbekistan develops projects on the establishment of gas-chemical manufacture, then the volumes of natural gas consumption of the Republic of Uzbekistan will be higher in comparison with the above noted forecast, which naturally will influence the level of gas supplies from Uzbekistan to Russia/Russian direction.
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In general, the above enumerated risks will lead to the reduction of Russian influence within the oil and gas industry of Uzbekistan. Moreover, that Russian energy policy in the Republic is still oriented mainly on gas production and export, and also on increase of Turkmen “blue fuel” transit.
However, the production and export of raw hydrocarbons – is a fragile fundament to build long-term relations. This is especially important in case with Uzbekistan, which doesn’t possess significant hydrocarbons exporting potential. The “raw materials” orientation of Russian-Uzbekistani cooperation doesn’t stimulate interindustry cooperation (which used to be extremely intensive during Soviet times), which significantly slows down the development of economic Russian-Uzbekistan interaction development in general. And within the framework of hydrocarbons processing or highly technologic fields development Russian companies mostly give the way to foreign competitors, which makes the position of Russia within the oil and gas industry of the Republic vulnerable.
That is why if Russia is still eager as a minimum to preserve and maximum to promote its role within the oil and gas industry of Uzbekistan, then already today it should accelerate its projects within the sphere of deep processing of hydrocarbons.